expression of any opinion whatsoever on the part of the World Health Organization concerning the legalstatus of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiersor boundaries. Dotted lines on maps represent approximate border lines for which there may not yet be fullagreement.The mention of specific companies or of certain manufacturers’ products does not imply that they areendorsed or recommended by the World Health Organization in preference to others of a similar nature thatare not mentioned. Errors and omissions excepted, the names of proprietary products are distinguished byinitial capital letters.The World Health Organization does not warrant that the information contained in this publication iscomplete and correct and shall not be liable for any damages incurred as a result of its use.

CONTRIBUTORSThe principal writers of this report were Andrew Creese, Nadine Gasman and MamadouMariko. Nadine Gasman produced most of the first draft and began the data collectionand analysis. Mamadou Mariko undertook much of the initial data analysis. The chapteron expenditure on medicines was written by Patricia Hernandez and Jean-Pierre Poullier,with data analysis by Chandika Indikadehena. The chapter on rational use of medicineswas written by Kathleen Holloway, Salone Tanna and Richard Laing. Warren Kaplan andEshetu Wondemagegnehu contributed the chapter on regulation. Work on the report wasdirected by a steering committee comprised of Jonathan Quick, Hans Hogerzeil, EdelisaCarandang and Jörg Hetzke. Comments on the revised draft, and text contributions weregratefully received from Guy Carrin, Abayneh Desta, Marthe Everard, Peter Graaff,Robert Ridley, Budiono Santoso, Bill Savedoff and Kris Weerasuriya. External reviewerswere Catherine Hodgkin, Richard Laing, Libby Levison, Felix Lobo, Helene Möller,Dennis Ross-Degnan, Sri Suryawati and Anita Wagner. The report was edited andimproved by Sheila Davey. Design and layout were by Renata Kerr. Tables and figureswere coordinated by Lisa Greenough and Liz Murray. Lalit Dwivedi and Kath Hurstadvised on publication and printing. Katy Bozsoki and Lisa Greenough provided secretarial support. Special thanks are due to Pascale Brudon and Nadine Gasman for showingthe way with The World Drug Situation 1988.

i viv

WORLD MEDICINEINTRODUCTIONPRODUCTION

INTRODUCTIONThis second review of the world medicines situation (first published in 1988 as The WorldDrug Situation) presents the available evidence on global production, research and development, international trade and consumption of pharmaceuticals. In addition, it drawson the most recent surveys and studies in WHO Member States to examine the state ofnational medicines policy. The aim is to provide an easily accessible source of informationon the pharmaceutical situation at global and national levels.Although the text is based on and around the available data, these data pose severalchallenges. For example, reliable data on the large pharmaceutical markets in the world’smost populous countries, the People’s Republic of China and India, are in short supply.Trade, production, expenditure and consumption data all come from different sources.In addition, the use of monetary values, rather than an indicator of volume, gives adistorted picture of production and consumption since it fails to reflect the scale of globalconsumption of traditional medicines and low-priced generics (both branded andnon-branded).Another problem is that certain key terms, such as “generic” medicines, are used differently by different parties, and usage is also changing. While 10 years ago the term “drugs”was widely used by WHO and other agencies, in today’s usage this seems too vague andinclusive, and is increasingly understood to refer to illicit substances. As a result, the term“pharmaceuticals” is now increasingly used (meaning both medicines and vaccines) oralternatively “medicines”. All three terms are used in this report, with explanations givenwhen needed, and this is reflected in the change in title from the 1988 report.Meanwhile, the pharmaceutical industry itself is difficult to define. Its products extendfrom first aid and cough remedies which are on sale to all, to highly specialized medicinesfor use only by hospital specialists. Some definitions bundle veterinary medicines andvaccines, bulk ingredients, medical devices and diagnostic products with finished pharmaceutical products. The Standard International Trade Classification (SITC Rev 3) distinguishes pharmaceuticals from medicaments and itemizes 57 four- and five-digit sub-itemsof these two commodities. Within these classifications the main focus of this report ismedicines for human consumption, including those available only on prescription andthose which can be purchased over the counter. However, in Chapters 1 and 3, thebroader industrial and trade classifications are used.The manufacturers of pharmaceuticals are numerous and diverse. At one end of thespectrum are the many firms of all sizes which collect and process herbs and medicinalplants for use in traditional medicine. No data are available on the volume of productsinvolved. At the other end of the spectrum are large, “integrated” transnational corporations, with the capacity to develop new molecular entities and to manufacture, marketand distribute medicines to most parts of the globe. Situated in between is a wide range ofmanufacturers differing in size, the kind of pharmaceuticals produced and in manufacturing and marketing techniques. In India, for example, 20 000 pharmaceutical manufacturers have been inventoried, but only 250 of these are in the “organized” sector, and theyaccount for 70% of the country’s total output of branded generics. Elsewhere, China’s

1

THE WORLD MEDICINES SITUATION

rapidly growing pharmaceutical industry has an estimated 7500 manufacturers but,according to one source, only 87 of these have internationally accepted Good ManufacturingPractice certification.1Finally, the pharmaceutical markets of the high-income countries differ widely fromthose in developing countries. Not only is per capita spending on health and medicinesmany times higher in high-income countries, but a much greater share of the medicinesbill is publicly subsidized. In the lowest-income countries, spending on medicines comeslargely from household resources and has to be paid for out of pocket at the time theperson is ill. Markets also differ in the extent and effectiveness of regulation in areas suchas medicine prices and safety. This report therefore covers a wide range of differentproducts from multiple and varied sources, prescribed, purchased and consumed in verydifferent domestic contexts.The report does not attempt to deal in a comprehensive way with a number of key policyissues in medicines policy, such as parallel trade, intellectual property rights, counterfeiting, or corporate pricing strategy, around which vigorous debate continues at both thenational and international level. Whilst WHO’s concerns and policy positions are madeclear at relevant points in the text, our primary aim is to provide an up-to-date set of basicinformation on the global medicines situation and on the current status of nationalmedicines policies. It is hoped that these data will serve as a useful set of reference material foranalysts, researchers and others concerned with the global pharmaceutical situation.

SUMMARY■ Trends from 1985 to 1999 indicate that the value of medicine production has

grown four times more rapidly than the world’s income.■ Medicine production is highly concentrated in the industrialized countries, where

just five countries – the USA, Japan, Germany, France and the UK – account fortwo-thirds of the value of all medicines produced.■ Large volume markets of lower-price medicines exist in the highly competitive

domestic markets of China and India.■ A small number of transnational companies dominate the global production, trade

and sales of medicines. Ten of these companies now account for almost half of allsales. This concentration has increased considerably since 1987.■ The 10 best-selling drugs account for 12% of the value of all medicine production.

1.1

INTRODUCTIONThis chapter summarizes available data on the pattern of global pharmaceutical production.i Production means the value added at each stage of the manufacturing process,whether it is the manufacturing of active ingredients in bulk from basic chemicals, thepreparation of finished new medical entities, or the repackaging of imported genericingredients to make finished branded or unbranded generic products. When measured inmonetary terms, global production is geographically a highly concentrated activity, withover 90% of world production located in a few high-income countries. The relativemarket share of major producing countries has been fairly stable over the past decade.Two-thirds of the value of medicines produced globally is accounted for by firms withheadquarters in just five countries — the USA, Japan, Germany, France and the UK.Production is also concentrated in a few key products and in a relatively small number ofcompanies, which often have factories and offices in many countries.Since monetary values are the most easily available and convenient measures of production, trade and sales of medicines, they are widely used in this report. However, they givea misleading measure of the therapeutic value of medicines.ii Some of the expensive drugs

i

As used in the major different industrial and trade classifications the term “pharmaceuticals” often includes more thanmedicines for human use. Vaccines and other biological products, blood and blood derivatives, diagnostic products, andall of the preceding intended for veterinary use, are frequently bundled together in economic statistics, though finishedpharmaceutical products for human use usually constitute by far the largest single component of this set. While theconcern of this book is with medicines for human use, the industrial production and international trade data in this andthe next chapter should be understood to include these other products.

ii

Therapeutic value can be measured in different ways. Simple measures of clinical improvement, such as feverreduction or recovery times, are widely used. For comparisons across different conditions and interventions, compositeassessments such as “healthy life years gained” or “disability-adjusted life years” gained are increasingly used.

3

THE WORLD MEDICINES SITUATION

available today have only modest therapeutic benefits, while many inexpensive medicinesare highly effective and safe. Most of the medicines on WHO’s Model List are in thissecond category. Manufacturers provide a stream of new products for the medicinesmarket place, usually at higher prices than existing products. New medicines with patentprotection, which may have resulted from costly research and development processes(R&D), and where large markets are anticipated, tend to be particularly expensive. Yetprice and therapeutic gain are not necessarily related. Large quantities of traditional andgeneric medicines are manufactured and consumed, particularly in low-income countries,and the therapeutic value of these is not reflected in available monetary measures. ForIndia and China in particular, the dollar value of medicine transactions bears littlerelation to the health value of these products. Where available, volume measures such asweight or the number of prescriptions can change the global perspective on productionand consumption dramatically. However, they still cannot measure the health value ofmedicines. India, for example, accounts for about 1% of the world’s production by value,but 8% by volume (weight). The country ranks thirteenth in world production by valuebut ranks fourth in the volume of pharmaceuticals produced.3 However, these measuresare still no closer to an index of therapeutic value, and the available data are too limited toallow international comparison or analysis of trends.The total value of global pharmaceutical production in 1999 was just over 320 billionUS dollars.i This corresponded to 1.12% of global gross domestic product (GDP). Table1.1 shows trends in global production for the period 1985–1999. The average annualgrowth rate of pharmaceutical production over this period was just under 10.5% at currentprices, in comparison with an average annual growth rate of global gross national product(GNP) of under 7.5%. The value of manufactured pharmaceuticals has thus grownsubstantially faster than the total value of goods and services. When these figures areconverted into constant prices to adjust for inflation, the rate at which pharmaceuticalproduction has outstripped GDP growth increases substantially. The average real growthrate of GDP was 3.6% per annum and the average real growth rate of pharmaceuticalproduction was 14.9% per annum.

TABLE 1.1

Estimated global value of pharmaceutical production 1985–1999,in current and constant US$ billionYearPharmaceutical production current pricesGlobal GNP current pricesPharmaceutical production constant (1995) pricesGlobal GNP constant (1995) prices

1985

1990

1999

82,1

175,9

327,2

10,766

22,299

29,232

46,2

140,5

370,1

20,302

24,555

33,672

Source: WHO estimates from database of UNIDO, OECD Health Data, World Development Indicators1987, 1992, 2001, International Financial Statistics Yearbook, 2002Note: List of countries from which data were available is given in Annex 1. 1999 values for manycountries are projections, estimated from data from 1981 to the most recent year available.

i

4

This estimation corroborates with that of the European Federation of Pharmaceutical Industries and Associations(EFPIA) which found a value of US$ 350 billion in 2000.

WORLD MEDICINE PRODUCTION

Figure 1.1 shows how total production was distributed among countries according totheir level of economic development, using the World Bank classification of countries,which groups them according to the level of income as follows:2High-income:

GNP per capita of US$ 9361 or more in 1999

Middle-income:

GNP per capita of US$ 761–US$ 9360 in 1999

Low-income:

GNP per capita of US$ 760 or less in 1999

Figure 1.1 shows that the high-income countries dominate in world pharmaceuticalproduction (by value). These countries’ share of production increased from 89.1% in 1985to 92.9% in 1999. The combined share of middle- and low-income countries decreasedfrom 10.9% to 7.1% over the same period.FIGURE 1.1

Share of low-, middle- and high-income countries in worldpharmaceutical production100.089.1

90.0

90.5

92.9

80.0

Percentage

70.060.050.040.030.020.010.0

3.9

2.6

7

2.6

6.9

4.5

0

Low-income

Middle-income1985

1990

High-income1999

Source: WHO estimates based on data reported by UNIDO, OECD

1.2

LEADING COUNTRIES IN GLOBAL PHARMACEUTICAL PRODUCTIONIn Figure 1.2, 188 countries are classified according to their medicines production capability,updating a typology first used in 1992.3 Ten countries are classed as having a “sophisticatedindustry with significant research”. Manufacturing in these countries is done by all threetypes of classified producer: transnational corporations, innovators and reproducers. Verylarge transnational corporations develop, manufacture and distribute medicines.i These10 countries, through the 10 companies headquartered in them and, in some cases,through large amounts of publicly funded research, are the principal sources of newmedicines discovery. Numerous smaller companies are also innovators but lack the fullyintegrated capability of the big transnational corporations. This group has grown dramatically with the growth of biotechnology over the past decade. Unlike the two previous

groups, reproducer firms manufacture medicines which are not protected by patent(unless under licence). These firms may be public or privately owned and are typicallysmall- to medium-sized.A further 16 countries, including India and China, have “innovative capability”, meaningthat at least one new molecular entity was discovered and marketed by these countriesin the period 1961–1990. Over the past decade, important changes have occurred in thisgroup, which includes some of the world’s biggest exporting countries. India, for example,has a rapidly growing pharmaceuticals biotechnology market currently estimated to beworth over US$ 1 billion, and in 1999–2000 spent some US$ 66 million on medicinesR&D, up from US$ 2.2 million in 1976–77.1Elsewhere, 97 countries have a domestic medicines industry based on reproducer firms,manufacturing branded or commodity generics. While the majority (84) of these manufacture finished products from imported ingredients, 13 countries (including Brazil,Egypt, Norway, Turkey and Indonesia) are considered to have industries which makeboth active ingredients and finished products.Figure 1.3 shows the share of total pharmaceutical production in each of the five topproducing countries from 1985 to 1999. The combined share of these countries fell from78% of total pharmaceutical production in 1985 to about 67% in 1999 while both Switzerland and Italy increased their output to about 4.5% each, just behind Germany and theUK, and just outside the top five. Since 1985, the top 10 medicines producing countrieshave accounted for 84%–88% of world production. The USA remains the biggest singleproducer (by value), accounting for almost one-third of total production, and Japan thesecond biggest. Together, these two countries produced 57% of the world’s pharmaceuticals in 1985 and 47% in 1999. The USA lost some of its market share to Japan and

6

WORLD MEDICINE PRODUCTION

Germany between 1985 and 1990. During the period 1985 to 1999, the market share of theUK was 6%–7%, while that of France remained at 7%–8%.FIGURE 1.3

Share of the top five countries in world pharmaceutical production,by value90%80%

6%

70%

8%

60%

Percentage

7%

7%

50%

8%

6%

10%

8%6%

19%

40%

20%

16%

31%

31%

1990

1999

30%

38%

20%10%0%

1985USA

Japan

Germany

France

UK

Source: WHO estimates based on data reported by UNIDO, OECD

Figure 1.4 shows pharmaceutical production in constant value terms (to base 1995) ineach of the five major producing countries from 1981 to 1997. Production in the USAincreased in each year throughout the period, while growth in the other four majorproducing countries was somewhat less regular.Pharmaceutical production trends (constant US$ million), top fivecountries 1981–1997120000

The concentration of value in industrialized countries occurs because the parent companyheadquarters of major transnational medicines corporations are located there. The parententerprises control the assets of parts of the company elsewhere in the world, usually by

7

THE WORLD MEDICINES SITUATION

equity ownership. The top 10 companies by value of sales accounted for almost half ofestimated world sales for 2001: US$ 175.3 billion out of a total of US$ 364 billion.5 Thisfigure is consistent with time-series data which show growing concentration in theshare of these top companies, as Table 1.2 shows. Further data on medicines sales andconsumption is presented in Chapter 4.

Concentration is also apparent when the medicines market is analysed by therapeuticclass and individual medicines or products. Sales of medicines in the top 10 therapeuticclasses (Table 1.3) account for over 30% of global sales, and sales of the 10 best-sellingmedicines account for US$ 40.2 billion or 13% of global market share.6

TABLE 1.3

Sales of medicines in the top 10 therapeutic classes, 2001Class

Total sales(US$ billion)

Percentageshare inglobal sales

Percentagegrowth2000–2001

Anti-ulcers

19.5

6

14

Cholesterol & triglyceridereducers

18.9

5

22

Antidepressants

15.9

5

20

Non-steroidal anti-inflammatorydrugs (NSAIDs)

10.9

5

16

9.9

3

4

Antihypertensive drugs(Ca antagonists)Antipsychotics

7.7

2

30

Oral antidiabetics

7.6

2

30

ACE inhibitors (plain)

7.5

2

5

Antibiotics (cephalosporinsand combinations)

6.7

2

0

Systematic antihistamines

6.7

2

22

111.3

34

16

All 10

Source: SCRIP 2747, 17 May 2002, based on IMS World Review data

In value terms, therefore, 10 countries account for 85% of all pharmaceutical productionand 10 companies for about half of all sales. The medicines in the top 10 therapeuticclasses account for one-third of all sales and the 10 best-selling medicines for one-eighth ofthe world pharmaceutical market.

SUMMARY■ Governments and pharmaceutical manufacturers are the main funders of the R&D

of new medicines and other health products.■ Investment in health R&D is concentrated in the industrialized economies.■ In the second half of the 20th century, rapid progress was made in developing

powerful new medicines. More recently, new developments in molecular biologyand genetics hold great promise for the discovery of new medicines. Yet thenumber of new molecular entities being brought to market has slowed in recentyears.■ Manufacturers attribute the high prices of new medicines to R&D costs and the

risks of new product development. However, critics query the actual cost of newmedicines development and point to the neglect of disease problems affectingpoor populations.■ The pattern of new medicines R&D reflects market opportunities rather than

global public health priorities. Only 10% of R&D spending is directed to the healthproblems that account for 90% of the global disease burden — the so-called10/90 Gap.■ Redeployment of a small portion of current public and private R&D funds and/or

private medicines marketing funds could make a major contribution to the development of new medicines for neglected diseases. New incentives are needed forsuch a shift to occur.

2.1

INTRODUCTIONKnowledge about the causes and treatment of illness expanded rapidly during the lastcentury and research into new medicines played an important part in this growth. At thebeginning of the twentieth century, aspirin was the only widely available modern medicine. In the 1940s, the first antibiotic, the first mass-produced antimalarial and the firstantitubercular medicine were introduced. In the 1950s and 1960s, oral contraceptives wereintroduced, as well as medicines for diabetes, mental illness, many infectious diseases,cardiovascular disease and cancer. “By the 1970s effective medicines — though not alwaysideal — existed for nearly every major illness we know”.i This progress continued throughout the 1980s and 1990s with the development of new drugs against HIV/AIDS.Since the publication of The World Drug Situation in 1988, the development of medicineshas undergone a major transformation — moving from a chemistry-based R&D processto molecular biology-based processes. Advances in the analysis of DNA have opened upthe possibility of understanding the genetic causes of disease. As a result, many new

genomics-based companies have emerged, recognizing the commercial potential of thisknowledge for medicines development. Some of these are owned or partnered by majortransnational pharmaceutical corporations, whose initial response to these new researchopportunities was often slow.1,2 The full implications for major pharmaceutical manufacturers of the potential use of advances in genetic science are not yet clear. One possibilityis that discovery of new mechanisms of biological action could lead to the development ofmultipurpose medicines to treat several disease pathologies. Another is that “targeted”medicines may be developed, tailored exclusively to the treatment of population groupswith the same genetic characteristics. The R&D and marketing implications of thesealternatives are obviously very different. Data presented later in this chapter indicate thatthe recent shift in the medicines research and discovery process has not yet had an impacton the number of medicines entering clinical development.New pharmaceutical products are a key component of improved knowledge in health,though several other components are also important. The Global Forum for HealthResearch,3 in its comprehensive analysis of global funding for health research, identifiesfive principal content areas and resource flows:1. Basic research2. Research into health conditions, diseases or injuries3. Exposures or other risk factors that impact on health (determinants)4. Health systems research5. Research capacity building.

This framework helps to put the R&D of new medicines into the wider context of newmedical, or health improving knowledge. While content area number 5 (capacity building) may be seen as an input into the previous four, new knowledge in any of the first fourareas can contribute to improvements in the health of individuals and populations.Research on the development of new medicines is most likely to fall into category 2 ofthis list.

2.2

TRENDS IN RESEARCH AND DEVELOPMENTTable 2.1 gives estimates of the sources and amounts of global health research anddevelopment funding in 1998, totalling some US$ 73.5 billion. Private funding for R&Dby the pharmaceutical industry is estimated to account for 42% of this total, slightly lessthan total public funding of health R&D by the high-income and transition countries.Private not-for-profit funding sources also make a measurable contribution to healthR&D. In 1998, the two biggest were the Wellcome Trust (UK) and the Howard HughesMedical Institute (USA). In 2000, the Bill and Melinda Gates Foundation was establishedin the USA, and has rapidly become a major source of global health research funds,spending over US$ 500 million on global health in 2002.The 1998 estimates show a substantial increase from previous estimates for 1992(US$ 55.8 billion), using a broadly similar approach. Some of this US$ 17.7 billionincrease is from improved reporting. About one-third of the remainder is estimated to be agenuine increase.

The notion of a broad perspective on health R&D is relatively recent and so data arescarce. Country-specific data are generally limited to OECD member countries, and eventhese are not always collected in a consistent way.4 Table 2.2 uses OECD data to estimateoverall spending (public and private) on health R&D in selected countries, and theproportion of this accounted for by the private sector pharmaceutical industry.TABLE 2.2

These data show that combined non-industry sources of health R&D remain dominant inthe USA, Japan, France, Germany and Canada. However, in all five countries, industryfunded R&D in medicines has grown faster over the decade than total health R&D, withthe growth in the industry R&D share being particularly fast in the USA, France andCanada. Figure 2.1 shows longer-term trend data on industry spending on pharmaceuticals R&D, as a percentage of total health R&D, for these countries over the period 1980 to1999. The gradual increase in the role of private pharmaceutical R&D in total health R&Din all countries is apparent. Most conspicuous is Germany, where private pharmaceuticalR&D is 72%–84% of total health R&D. In the other countries, public and private fundingare more evenly balanced.

An OECD study on health R&D broadly confirms the above results and shows muchvariety in funding patterns for health R&D in industrialized countries. Different publicand private bodies contribute significantly to total health R&D. However, data sources onpublic funding are often fragmented and are seldom organized into the five categories ofhealth R&D set out above. Figure 2.2 groups the results of in-depth analyses undertakenin several countries on health R&D and are probably more accurate than the data inTable 2.2. The figure shows the relative importance of R&D funds from the public sector,industry and the not-for-profit sector in these countries in 1997.FIGURE 2.2

Among these seven countries, the UK’s health R&D spending in 1997 is the most heavilydominated by private sector pharmaceutical research and Norway’s the most dominated

14

RESEARCH AND DEVELOPMENT

by public spending. The presence of funding by not-for-profit agencies is visible in theUSA, UK, Canada and Australia. The share of GDP allocated to health R&D in thesecountries in 1997 varied from a high of 0.4% in France and the UK, to 0.2% in the USAand Denmark, and 0.1% in Australia and Canada (1997 data are not available from thesame source for Norway).Table 2.3 shows the estimated value of health R&D spending and its percentage of GDPfor six countries in economic transition (1998). All six countries allocate less than 0.25%of GDP.

TABLE 2.3

Health R&D 1998, selected countries in transitionCountry

Health R&D,US$ million

Czech RepublicHungaryPolandRussiaSlovak RepublicSlovenia

Percentage of GDPfor health R&D

84.2165.5267.2188.243.056.3

0.060.160.080.020.080.24

Source: Global Forum for Health Research, 2001

Data on health R&D from some developing countries suggest that, as income levels fall,an even lower proportion of national income is devoted to this type of investment.Table 2.4 shows that Thailand, the Philippines and Malaysia together spent someUS$ 30 million in 1998 on health R&D. But the proportion of GDP (0.01%–0.049%)allocated for health R&D is generally much lower than in countries in transition, or inhigh-income market economies.

TABLE 2.4

Health R&D, selected Asian developing countries, 1998Country

Health R&D,US$ million

MalaysiaPhilippinesThailand

6.97.415.7

Percentage of GDPfor health R&D0.010.0490.012

Source: Global Forum for Health Research, 2001

2.3

R&D SPENDING BY THE PHARMACEUTICAL INDUSTRYInnovation is an essential part of the identity of the major transnational pharmaceuticalcompanies, which distinguish themselves as the “research-based industry” in contrast tothe manufacturers of generic medicines. Innovative capability conveys scientific prestige,a competitive advantage over other manufacturers and, when a new product or process issufficiently important, protection under national patent (intellectual property) law. Thisis of special importance as it allows the patent-holding company exclusive rights overthe product for a defined period so that it is protected from competition, except whereindependent therapeutic advances are made in the same area by competitors using a15

THE WORLD MEDICINES SITUATION

different technology. Patent protection allows the manufacturer to set prices according towhat the market will bear, which is likely to be well above production cost for breakthrough medicines that are effective in tackling widespread and severe illnesses in highincome markets. The temporary monopolies which patents create are said to be necessaryto reward firms for taking expensive risks in new medicines development. These can beextremely valuable to companies, as their efforts to prolong patent life beyond the originalperiod show. However, critics query the actual costs of new medicines development andpoint to the neglect of disease problems affecting poor populations.5The role of medicine patents in an era of increasingly global trade rules is a key issue inarguments over access to essential medicines, as demonstrated by the conflict over accessto antiretroviral medicines for people with HIV/AIDS in low-income countries. Possibleroutes to achieving lower prices for essential medicines in low-income countries arediscussed in Chapter 7. Patent protection is also a contentious issue in high-incomecountries, wherever access to effective treatment is impeded by high medicine prices.6Following several years of rapid innovation from 1980 to the mid-1990s (measured by newdrug approvals in the USA) there is increasing evidence of a recent fall in the output ofglobal R&D into new medicines.7,8 While R&D spending tripled between 1990 and 2000,the annual number of new medicines approved fell from its peak of over 50 in 1996 to 32in 2000, the lowest output for over 20 years. Only one in about 5000 early drug candidatessurvive to reach market approval. It is considered likely that over the period to 2006,major companies will launch an average of 1.3 new active substances each per year. Aforecast published in October 2002 indicated that only four companies were likely to havemore than two new medicine launches in 2003.9 According to an annual review of theindustry in 2000, “Pipeline sizes remain static, the number of submissions is decreasing,and the output of new molecular entities has fallen to a 20-year low”.10After marketing costs, R&D is typically the second biggest item in the spending profile oflarge pharmaceutical companies. However, significant differences exist among the majorcompanies in this respect, as Figure 2.3 illustrates.FIGURE 2.3

Pharmacia (merger with Pfizer completed in April 2003), AstraZeneca, Aventis and Pfizerall spend at least 15% of their sales revenue on R&D, whereas Merck spends about 5%,though the actual R&D budgets of these 10 big companies vary less than these percentagedifferences.Many companies involved in the R&D of new medicines, particularly those specializing inbiotechnology, are relatively small and some of these spend far higher proportions of salesrevenue on R&D than the established major companies. Data for 1998 indicate thatseveral biotechnology firms with sales of between US$ 4 million and US$ 140 millionwere spending more on R&D than they were receiving in sales revenue in that year, in onecase 2.4 times more.11 Although annual sales figures are volatile in this sector, suchpatterns are clearly not sustainable in the longer run unless companies have significantnon-sales sources of revenue such as research grants or licence revenue. Such data indicatethe levels of both risk and opportunity associated with new medicines discovery.Figure 2.4 shows R&D spending as a percentage of sales in the five biotechnology companies with the largest research budgets for 2001. In these companies, the size of the R&Dbudget in relation to sales more closely resembles that of some major pharmaceuticalcompanies.FIGURE 2.4

PHARMACEUTICAL INDUSTRY R&D INVESTMENT:WHERE THE MONEY GOESMost of the R&D budget of the major companies goes on the different stages of clinicalevaluation of new products. Pharmaceutical Research and Manufacturers of America(PhRMA) data for the USA in 1998 indicate the breakdown as:Clinical evaluation:Basic research:Development of production process:Implementing regulatory requirements:Other:

40%27%19%7%7%

17

THE WORLD MEDICINES SITUATION

The increasing costs of R&D and recent falls in productivity have been factors in encouraging mergers. Much of the analysis of merger prospects is conducted in terms of companies’product pipeline size and complementarity. Rising R&D costs are also prompting manufacturers to develop strategic alliances with small research companies, particularlybiotechnology companies, with partial equity, financing and commitments to buyproducts. Over 700 such alliances were consolidated in 1997 and 1998, compared with 319in 1990 and 428 in 1992.1 Contractual outsourcing of some research and product testing isalso being used. In addition, companies are increasingly trying to implement rationaldrug design strategies to guide their R&D efforts.In terms of product development, the diseases and conditions that affect people in theworld’s major markets largely determine where the pharmaceutical industry’s investments go. The Global Forum for Health Research highlights the fact that only 10% ofR&D spending is directed to the health problems that account for 90% of the globaldisease burden — the so-called 10/90 Gap.3In 1998, over 60% of total R&D investment was allocated for the development of medicines for the central nervous and sense organs, cancers, endocrine and metabolic diseasesand cardiovascular diseases. Table 2.5 shows that in the period 1981–1996 there was somegrowth in investments in anti-infective and antiparasitic diseases, as indicated by thenumber of new compounds. This probably reflects the HIV/AIDS epidemic and thespread of antimicrobial resistance. However, no new class of antituberculosis medicinehas been developed in almost 20 years despite the high burden of this disease. In 2003Médecins Sans Frontières, with the support of several ministries of health and researchinstitutes, and assistance from some pharmaceutical manufacturers, launched the Drugsfor Neglected Diseases Initiative. Initially focussed on drugs for sleeping sickness, leishmaniasis and Chagas disease, this not-for-profit research organization is specificallyconcerned with developing new knowledge in areas with little profit-making potential.12

TABLE 2.5

Compounds under R&D by therapeutic class, 1981, 1986 and 1996Number of compounds per yearTherapeutic class

In 1999, 6046 products were in development worldwide and 10 companies accounted forover 15% of all new pharmaceutical products under development.13 Table 2.6 showswhich companies had most R&D products in development in 1999.

18

RESEARCH AND DEVELOPMENT

TABLE 2.6

Total number of products in R&D, top 10 companies, 1999CompanyRocheSmithKlineBeechamAmerican Home ProductsGlaxo WellcomeMerckNovartisHoechst Marion RousselWarner LambertPharmacia & UpjohnEli Lilly

Total products in R&D 19991221149392898984848074

Source: SCRIP Yearbook 2000

However, many of the products under R&D may not be new molecules. Only 40 newmolecular entities were launched in 1999.Seen in the wider context as part of total health R&D, pharmaceutical companies andgovernments are the two major players in the development of new knowledge. Fourdecades of rapid advance in the second part of the twentieth century have been followedby a recent plateau, as the potential of new scientific approaches to aid medicine development slowly unfolds. A small number of national and corporate entities continue to bethe major locomotives in new health and medicine knowledge, though this may changerapidly in the decades ahead.The relevance of today’s medicine product mix to the world’s health problems could begreatly improved. Some initiatives are already working to this end. In the vaccines area,the Global Alliance for Vaccines and Immunization (GAVI) aims to enhance the commercial attractiveness of the market by stimulating demand in developing country markets,strengthening infrastructure and guaranteeing some purchasing of products. The idea isthat a firm advance commitment to purchase safe and effective vaccines will reduce therisks faced by private sector manufacturers and help redirect research towards the vaccinesthat are a priority for low-income countries.14 The Medicines for Malaria Venture (MMV),founded in 1999, is a public and private partnership concerned with the discovery,development and registration of new medicines for the treatment and prevention ofmalaria.15 A Global Alliance for TB Drug Development16 was begun in 2000, committedto delivering a new anti-tuberculosis medicine in a decade. And, as mentioned above, in2003 the Drugs for Neglected Diseases Initiative17 was launched, driven by public sectorstakeholders, to develop or adapt drugs for patients suffering from important diseaseswith little apparent commercial market, such as sleeping sickness and Chagas disease.These mechanisms fill some important gaps between the opportunities which facecommercial medicine manufacturers on the one hand, and the global burden of diseaseon the other.In the meantime, the medicines market continues to be dominated by lifestyle-relatedand convenience medicines for richer populations at the expense of the medicine needsof the poor. This will not change without more extensive management of the globalmedicines market. Redeployment of a small portion of current public and private R&Dfunds and/or private medicines marketing funds could make a major contribution to thedevelopment of new medicines for neglected diseases. New incentives are needed for sucha shift to occur.19